The term Santa Claus rally refers to an increase in financial markets during the month of December. The Santa Claus rally is one of several market movements attributed to investor psychology rather than fundamental improvements in the market's outlook.
Financial markets, such as commodities, bonds, and stocks, typically demonstrate an upward or downward trend over time. The Santa Claus rally states financial markets in general, and stocks in particular, typically increase in the month of December.
While most scholars argue the Santa Claus rally is based on investor sentiment, rather than fundamental improvements, there are a number of other explanations for this phenomenon:
Empirical evidence suggests December is the most lucrative month for investors. Over the 50-year period from January 1960 through December 2009, the S&P 500 Index provided investors with a 1.44% return in the month of December, the largest of any calendar month.